H.264 Royalties: what you need to know

[Breaking news - On February 3, 2010, MPEG-LA announced a continuation of free pricing for free Internet distribution of H.264 video. Read the release here, and an interview with Larry Horn, MPEG-LA CEO, here.]

Whenever I speak at industry groups about H.264, and detail the upcoming royalty obligation, some attendees are invariably surprised that using H.264 will generate royalties. Here's what you need to know about H.264 and royalties, in an except from an article that I wrote for StreamingMedia.com.

Royalties

The final factor that may be slowing H.264 adoption is the potential for royalty payments starting in 2011. This became a major issue during a recent consulting engagement I had with a multinational equipment manufacturer. Let’s start with what we know and why it was so scary for my client; then, I’ll recount a conversation that I had with Allen Harkness, director of licensing for MPEG LA.

Briefly, MPEG LA represents the patent holders of AVC/H.264 technologies. It is the sole licensing authority for the technology. Typical customers include consumer equipment manufacturers (Blu-ray Disc players and recorders), software developers (encoding programs, DVD players), and content developers. According to the “Summary of AVC/H.264 License Terms,” which you can download from the MPEG LA site (www.mpegla.com/ avc/avc-agreement.cfm), there are no royalties for free internet broadcast (there are, however, royalties for pay-per-view or subscription video) until Dec. 31, 2010. After that, “the royalty shall be no more than the economic equivalent of royalties payable during the same time for free television.”This makes royalties payable for “free television” the best predictor of where internet royalties will stand in 2011. Under the terms of the agreement, you have two options: a one-time payment of $2,500 “per AVC transmission encoder” or an annual fee starting at “$2,500 per calendar year per Broadcast Markets of at least 100,000 but no more than 499,999 television households, $5,000 per calendar year per Broadcast Market which includes at least 500,000 but no more than 999,999 television households, and $10,000 per calendar year per Broadcast Market which includes at 1,000,000 or more television households.”

According to my discussions with Harkness, the AVC transmission encoder has no applicability to on-demand delivery. So the most likely result will be a yearly fee per broadcast market, which may be the internet as a whole, but, logically, it could also be applied on a per-country basis. In the case of my multinational equipment manufacturer client, which has more than 25 international subsidiaries, each with its own website, the potential royalty charge exceeded $250,000. When I outlined my findings with the client, it was clear that this would be a major factor in its decision to change over to H.264.

When I spoke with Harkness, he stated that the patent group hadn’t yet decided the license provisions for internet broadcast, or even if there would be a license, though he conceded that it would make little sense for the patent group to forego this revenue. The only thing certain is that the royalty provisions must be announced by January 2010 for royalties that would be payable the following year.

I asked about MPEG LA’s definition of “broadcast market” since this has such a significant impact for multinationals. Harkness felt that the group would make a case-by-case analysis of each business to determine if the internet as a whole was a single market or if each country represented a different market. Factors would include legal ownership and the uniqueness of the business in each country.

From an ownership perspective, if all subsidiaries were owned by a single parent company, it would move toward a single license, while a consortium of locally owned companies might need separate licenses. In terms of unique business, if a manufacturer sold a single product worldwide with basic sales and service offices in each country, one license might apply. If a manufacturer customized products for each country and operated almost as stand-alone businesses in each country, each entity might need a separate license.

Harkness cautioned, however, that the royalty group may go in a totally different direction when it came to license terms for internet usage. He did note, however, that the reference to royalties for free television was meant as an indicator of the appropriate dollar amounts, if not collection schemas.

Harkness also made it clear that it was the company that delivered the video to the end user that paid the royalty, not the content owner. For example, in the cable TV world, individual networks such as ESPN or the Golf Channel don’t pay the royalty; the cable provider pays. In this regard, hosting providers that actually deliver the streams to target viewers would likely bear the royalty obligation, with the ability to price it into their hosting services and spread the cost over all viewers. For a more detailed discussion of H.264 licensing costs and issues, see Tim Siglin’s "The H.264 Licensing Labyrinth."

Thanks for your note. I'm not 100% sure, but i doubt using an open source codec could avoid the royalty. I'm thinking that MPEG-LA would assume that if the compressed file plays in an H.264 player, it must contain intellectual property owned by someone in their patent group.

That being the case, they would pursue the publisher of the video, not the producer of the codec. Not 100% sure, but that would be my best guess.

Thank you for writing this overview. I still have a question though. Do you know by any chance if one would need a license and what it would cost to include x264 in open source (GPL) video conferencing software? The intent would be to use the H.264 standard for encoding and decoding the video streams between conference participants.

I have no idea how this case would relate to the terms broadcasting or content as used by MPEG LA. Skype, which uses H.264 codecs for video conferencing is listed on the MPEG LA licensee page though.

Would there be any difference if the H.264 codecs embedded Windows 7 would be used instead of x264?

- using x264 in an open source video conferencing software would give rise to an immediate royalty (the delay until 2011 was only for free internet broadcasts).

- If you use the H.264 codecs embedded in Windows, you MAY be OK.

Basically, if you're trying to create a legitimate product that you want to sell/license to real customers, you either need to contact MPEG-LA and get their views or hire an attorney.Otherwise, it could really cause problems for you and/or your customers down the road.

As I understand, the licensing fees for end-to-end communications are covered by the codec manufacturer. I believe x264 would be an entirely different story, as there is no manufacturer coverage as far as i know. x264's licensing status is quite unclear to me.

We just sent an e-mail to the MPEG LA licensing office requesting confirmation, just to be on the safe side, I'll keep you updated.

We contacted the people from MPEG-LA. If we'd use built-in codecs from the operating system (or any other codec the user already posesses) we don't have to pay a fee because that is already covered by the codec manufacturer.

If we'd bundle x264 we'd have to pay up to 5 million dollars each year (depending on the amount of users, which is extremely hard to accurately estimate). They've also e-mailed us a copy of the full license for review.

Every few years something like this pops-up about the newest crunchable codec that works for multimedia des. I hope this is just a farse. Other wise there may be alot of back-pedaling that needs to be done on a ton of already posted material.

I have a difficult time seeing how this can be enforced. I'll sit-tight until more info comes to us.

Well, now it's the last working day of January 2010 - has anything been announced?

It would seem this has all become critically relevant all of a sudden; the iPad (seemingly deliberately) not supporting Flash video is going to send an army of video site developers screaming into the arms of HTML5 and H.264. Are MPEG-LA waiting with an invoice?

I just had a really good conversation with someone at MPEG-LA; apparently there is to be a press release about this in the next couple of weeks, and I don't want to pre-empt that, but let's just say I was pleased with the conversation!

MPEG LA’s AVC License Will Continue Not to Charge Royalties for Internet Video that is Free to End Users

(DENVER, CO, US – 2 February 2010) – MPEG LA announced today that its AVC Patent Portfolio License will continue not to charge royalties for Internet Video that is free to end users (known as Internet Broadcast AVC Video) during the next License term from January 1, 2011 to December 31, 2016. Products and services other than Internet Broadcast AVC Video continue to be royalty-bearing, and royalties to apply during the next term will be announced before the end of 2010.

MPEG LA's AVC Patent Portfolio License provides access to essential patent rights for the AVC/H.264 (MPEG-4 Part 10) digital video coding standard. In addition to Internet Broadcast AVC Video, MPEG LA’s AVC Patent Portfolio License provides coverage for devices that decode and encode AVC video, AVC video sold to end users for a fee on a title or subscription basis and free television video services. AVC video is used in set-top boxes, media player and other personal computer software, mobile devices including telephones and mobile television receivers, Blu-ray DiscTM players and recorders, Blu-ray video optical discs, game machines, personal media player devices and still and video cameras.

This confirms my conversation with the MPEG-LA person, although I'm slightly confused why it should be to 31/12/2016 instead of 31/12/2015 when it's supposed to be a five-yearly renewal - someone's fencepost error?

Interestingly, although there will be no royalty for free content (nor for PPV content less than 12 minutes, nor for subscription < 100,000 subs) the publisher is still supposed to conclude a licence with MPEG-LA. I pointed out they could have a serious scale issue if every Joe Bloggs with H.264 video on their personal website tries to do this; but I suspect they wouldn't in practice enforce this, since there's no economic loss they could claim for.

It's also interesting who they consider to be the publisher - it appears to be the "consumer brand" rather than the hosting service. I was asking as a white-label video management and hosting service, but it seems that if any royalties were payable (e.g. for PPV > 12 mins, or subscribers > 100k) they would want the content publisher to have a licence and pay. So it looks like all we can do as hosting providers is manage the usage statistics, reporting and payment flow to make that easier for them.

But all in all, good news for H.264 becoming a standard for Internet video. There are of course still quite separate issues with the codecs at either end to deal with, but at least the ordinary web site owner using commercial encoding software (e.g. Quicktime Pro) is off the hook for at least 6 (5?) years.

Great post, thanks for alerting all of us and explaining the new provisions.

It's December 31, 2016 (not 2015) because royalties weren't due to start until the end of 2010, not the beginning (they're announcing now for a policy to go into effect on 1/2011, and extend until 2016).

I'm going to try to speak with someone over there - on the record - get some more details. Hope I have as much luck as you apparently did.

Understood it's from 1/1/2011, but that's still 6 years to 31/12/2016 (effectively, 1/1/2017). But I had to write it down on a timeline before I was fully confident in this, too :-) I have asked my contact (slightly tongue-in-cheek) whether this was intentional or not...

This royalty fee is going to be one of the biggest hindrances to widespread adoption, especially when it's really unclear how the licensing works and your organization isn't of a size that can justify throwing lawyers at it. This idea of tying it to TV markets really tells me that the people who designed it don't have the first clue about the Internet.

I'm not making any money off my content. But I want to use h.264. Who's paying the royalty? Me? Wowza? Adobe? How much?

If the H.264 people want widespread adoption, they need to make the terms of the royalty license understandable to mere mortals, or it's absolutely unenforceable. I suspect this is going to wind up a lot like Microsoft's licensing or the IRS tax code, where the entire thing is highly subjective and open to interpretation, and the answer you get will depend entirely on who you ask, and you're never going to get the same answer twice.

This is disappointing. I wish they would just build the fee into the cost of the product or plugin that displays the content and let the content makers be free to distribute content that encourages the purchasing of said devices/plugins. Make the h.264 codec an "app" in a "store"- or however that would work - and let me pay 2 bucks to license it to device locked to a MAC address or similar moblie device equivlanent and move on... OR let me buy the license for my hosting account for a small fee per year, like a static IP cost is now. This isn't going to be good for the small media guys or print publishers looking to move to video online.

I work for a company where one of our products are web TV for local and national papers. With over 25 separate domains delivering content we are talking potential license cost of over $75 000. We might need to dowgrade to VP6, somehow get everything under one license or just kill the product off.

There's an open source video conferencing client called Access Grid which uses an open source video tool called vic. The default vic uses H.261, but there are a variety of H.264 codecs available also. You could also look at http://mediatools.cs.ucl.ac.uk/nets/mmedia/ who are coding up some H.264 interfaces.

I was looking into the "manufacturer" licence bundle on mpegla and here is what looks odd to me: in their agreement summary documents they only list two types of products:

"...encoder and decoder manufacturer sublicenses are divided roughly intotwo subcategories: (1) sublicense for branded encoder and decoder products sold both toend users and on an OEM basis for incorporation into personal computers but not part ofan operating system4 and (2) sublicense for branded encoder and decoder products soldon an OEM basis for incorporation into personal computers as part of a computeroperating system"

My question is: what about products that are not incorporated into a PC? Webcams, for example. They seem to be not covered by the two subcategories...

I work as a Technology Assistant at a small private K-12 Christian school. And I have made some promotional videos, etc. to put onto our website, just help promote the school a bit better. So, I had to compress the videos with H.264 to be able to upload it to youtube first, then link it from there.

So, utilizing the H.264 compression....will we need to pay royalties for that. I read about the free internet distribution of H.264, Internet Video that is free for end users, does that cover this usage? Or is that for something else?

Sir, the internet was given to everyone freely by an Englishman. Charging, therefore, is open to debate. What happens if we stop using H264 technology? You Tube will accept most video codecs including Apple Pro Res, which is of better quality anyway!

Thanks for your note. ProRes vs. H.264 is a tough debate, since it's a much higher bit rate source, easily as much as 10X.

Quality depends upon source and ProRes flavor. If you're shooting with a DSLR (in H.264 format) and convert to ProRes, the quality certainly doesn't improve. If you use ProRes Proxy, quality is worse than H.264 encoded at 1/3 the data rate of the ProRes file.

In general, ProRes is great as an intermediate format for editing, but I'd convert to H.264 before uploading.

Besides, ProRes isn't free - it's an Apple format, and vendors have to pay to include ProRes export in their products, just like H.264 (in Windows, anyway, on the Mac, once it's installed, all programs can export it).

Perhaps a more appropriate argument would be H.264 vs. WebM for uploading. I'm assuming you can upload WebM to YouTube, though I've never tried it. There, the quality is very similar, and WebM is free to all.

This discussion is fruitless, as there is no legal right to internet control of your product. Trying to re-write history doesn't work. Charges for your product (Mpeg H264) will remain with manufacturing.